According to the Zhongtong Finance App, GF Securities issued a research report stating that the business model and asset quality of nuclear power are similar to hydropower, which are characterized by heavy assets, long term, dividend distribution, and low beta. At the same time, electrical utilities have rigid power consumption, and their operation is less affected by economic cycle fluctuations. The main electricity price is divided into planned electricity price and market-based electricity price. In recent years, the proportion of market-based electricity price for nuclear power has gradually increased, but there are few provinces that settle according to the actual market-based electricity price (Jiangsu Province settles according to the market-based electricity price). Some provinces (such as Guangdong and Guangxi) have a premium recovery mechanism. Overall, the average electricity price of nuclear power fluctuates narrowly affected by the market-based electricity price of thermal power.

The approval of installed capacity solidifies growth expectations. The nuclear power industry presents an oligopoly pattern, with only four power generation companies in China having nuclear power operation qualifications. The business model and asset quality of nuclear power are similar to hydropower, which are characterized by heavy assets, long term, dividend distribution, and low beta. At the same time, electrical utilities have rigid power consumption, and their operation is less affected by economic cycle fluctuations. Meanwhile, in the context of carbon neutrality and energy security, nuclear power is clean, efficient, and provides stable output, making it an important base load power source in China's power system. The approval process for nuclear power has become normalized, with 10 or more units approved from 2022 to 2024. As of August 2024, China has a nuclear power installed capacity of 58.22GW in operation, with an additional 57GW in construction or approved for construction. The current proportion of nuclear power generation is only 5%, and it is expected to reach 10% by 2035.

The actual proportion of market-based electricity price is relatively low, and the electricity price of nuclear power fluctuates narrowly. Nuclear power is mainly divided into planned electricity price and market-based electricity price. In recent years, the proportion of market-based electricity price for nuclear power has gradually increased, but there are few provinces that settle according to the actual market-based electricity price (Jiangsu Province settles according to the market-based electricity price). Some provinces (such as Guangdong and Guangxi) have a premium recovery mechanism. Overall, the average electricity price of nuclear power fluctuates narrowly affected by the market-based electricity price of thermal power. Before the sharp rise in coal prices, the average electricity price for China National Nuclear Power and CGN Power in 2019-2021 was 0.4 yuan/kWh, and the price increase in 2022-2023 was about 1-2.2 points, much lower than the increase in thermal power prices. Even if the market-based electricity price decreases subsequently, the decrease in the premium recovery mechanism will be limited.

Costs have risen slightly, with a focus on the impact of uranium prices. The cost of nuclear power generation is about 0.19 yuan/kWh, which has increased slightly in recent years, with an increase of about 0.5-2 points per kWh, mainly due to the impact of provision for spent fuel disposal. With technological advancements and increased localization, third-generation nuclear power is expected to further reduce costs and increase efficiency. As for fuel, current natural uranium prices have risen rapidly, but nuclear power companies usually sign long-term procurement contracts with uranium companies under the control of their holding groups, and the procurement is done 2-3 years in advance. GF Securities believes that the fluctuation in uranium prices is relatively controllable, and future technological advancements are expected to improve fuel utilization efficiency.

The driving force behind the nuclear power market lies in its becoming a public utility, with growth realization, long-term dividends, and potential ROE improvement. Currently, nuclear power is in a high capital expenditure peak, so China National Nuclear Power plans to raise 14 billion yuan through private placement to major shareholders and the social security fund, and CGN Power plans to issue convertible bonds to raise 4.9 billion yuan. However, GF Securities predicts that with the improvement of cash flow through installed capacity production and limited equity financing needs, nuclear power companies will continue to focus on growth stability. Comparing the assets of hydropower and nuclear power, GF Securities believes that the essence of the nuclear power market lies in the certainty of its growth, which includes a current dividend yield of 2-3%, a compound installation growth rate of 8-10%, and capital gains from valuation improvement. The comparison includes: (1) More prominent growth compared to hydropower; (2) The asset quality represented by ROE is similar to hydropower. The current proportion of construction projects for nuclear power is relatively high, and the asset turnover rate is low, but the expected ROE can be improved in the future. (3) The current dividend ratio is 35-45%, which can be further compared to the 70% dividend ratio of Changdian Power; (4) With the evolution of becoming a public utility, an increase in valuation can be expected, and the probability of capital gains confirmation is higher. As of 2024, CGN Power's P/E ratio is only 15 times, which is much lower than the 20 times P/E ratio of domestic hydropower and nuclear power.

Focus on nuclear power leaders with both growth and stability. China General Nuclear Power (003816.SZ) / CGN Power (01816) / China National Nuclear Power (601985.SH) are recommended.

Risk warning. Policy risk; electricity price risk; unit stable operation risk (technical risk).